A low-key investor is betting on the heavily indebted East Loop office building, which is trying to replace DePaul University after the school left a chunk of space in the building last year.

A limited liability company linked to Firenze Group’s David Perlstein and an investor named Sung Moon defaulted in February on the ground lease for the 22-story, 455,000-square-foot building at 55 East Jackson Avenue. In 2019, they purchased the leasehold rights to the building for $64 million from Mark Realty, one of Chicago’s most prominent commercial landlords.

The deal allows Pearlstein and Moon to collect income from office tenant rents while paying a ground lease fee to Marc, who retains the land title. DePaul is making steady profits on its 158,000-square-foot lease, giving the property an annual income stream more than double its total debt service, according to credit-rating agency DBRS Morningstar. DePaul terminated the lease late last year and consolidated his office at 55 Jackson into the building on campus.

Perlstein and Moon’s $44 million loan from lender Ready Capital Structured Finance to finance their acquisition of Jackson Boulevard is due in August. It was moved to a special servicer this spring, meaning lenders and borrowers had to work out some kinks, according to Morningstar. After the loan is issued, the debt is packaged with other commercial real estate loans and sold to investors in the securities market, making part of the real estate information public.

This isn’t the only office building in Chicago with ground-level lease issues. At 300 South Riverside Plaza, prominent New York investor Rubin Schron was involved in a joint venture as the landlord of the ground rent that had building owners David Werner and Joseph Mizrachi struggling. Earlier this year, the lender put a $167 million land lease loan on lender’s watch list after Werner and Mizrachi each defaulted on $175 million in loans for the West Loop building.

It’s unclear what caused Perlstein and Moon to default on their East Loop ground lease — whether their entities failed to pay ground lease fees or fell into other breaches of terms. According to Cook County records, the term of the land lease is 99 years.

Perlstein did not respond to a request for comment, and Key Bank, the special services arm currently overseeing the $44 million loan, declined to comment. Mark Properties did not respond to a request for comment.

It’s not the first time in recent months that the Fiorentina group has hit the headlines with a deal pending. Early last year, Perlstein’s Virginia-based company reportedly entered into an agreement to purchase the 65-story building at 311 South Wacker Drive for $310 million. But the deal never closed, forcing the landlord — a joint venture between Chicago-based Zeller Realty Group and Chinese firm Cindat — to hire a new brokerage and market the property again.

It remains without a deal, and its bid is expected to be well below what Florence has reportedly agreed to pay, with the rate hike further squeezing office valuations already under duress due to the pandemic and the remote-working trend.

Marc Realty’s West Loop office building on Jackson Boulevard faces foreclosure. The company allegedly failed to repay more than $14 million on a $16.5 million loan for the 10-story, 198,000-square-foot building at 216 West Jackson Avenue, which the landlord’s former largest tenant, Marex Spectron, vacated about 40,000 square feet in 2020. foot. A lawsuit involving the property was filed by the lenders in January and is still pending in court, though Mark is reportedly cooperating and considering a foreclosure deed in lieu to simplify the giveback process.

It’s unclear how Florence’s land lease issues will ultimately affect ownership of 55 East Jackson. Florence is reportedly in discussions with a nonprofit tenant to backfill the now-vacant space in DuPaul, but according to a March report by Morningstar, there has been little new information on the potential lease recently.

If Marc finds a way to repossess the architectural portion of the East Loop property due to a breach of the ground lease, the company will once again have its own office. It occupies the building’s 500 suites, according to its website.

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